Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Phillips 66, FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
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The financial performance from 2015 to 2019 is characterized by significant volatility in both operating cash flows and free cash flow to the firm (FCFF), culminating in a peak during the 2018 fiscal year followed by a sharp contraction in 2019.
- Net Cash Provided by Operating Activities
- Operating cash flows exhibited a non-linear trajectory, beginning at 5,713 million USD in 2015 and declining to 2,963 million USD in 2016. A recovery phase followed, with a marginal increase in 2017 to 3,648 million USD, followed by a substantial surge to a five-year peak of 7,573 million USD in 2018. By 2019, this figure retracted to 4,808 million USD.
- Free Cash Flow to the Firm (FCFF) Dynamics
- FCFF demonstrated a strong upward trend for the first four years of the period. Starting at 219 million USD in 2015, FCFF grew progressively to 413 million USD in 2016 and 2,126 million USD in 2017, reaching a maximum of 5,317 million USD in 2018. However, this growth reversed sharply in 2019, with FCFF falling to 1,336 million USD.
- Cash Flow Conversion and Absorption
- The variance between operating cash flows and FCFF shifted notably over the period. In 2015, a substantial portion of operating cash was absorbed, as FCFF represented a small fraction of net operating cash. This gap narrowed significantly by 2018, when FCFF reached its highest proportionality relative to operating cash flow, indicating a period of lower capital expenditure or optimized financing costs. The 2019 results show a return to higher cash absorption, as the decline in FCFF was more pronounced than the decline in operating cash flow.
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Interest Paid, Net of Tax
Phillips 66, interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
2 2019 Calculation
Cash payments, interest, tax = Cash payments, interest × EITR
= 426 × 20.20% = 86
3 2019 Calculation
Interest capitalized, tax = Interest capitalized × EITR
= 77 × 20.20% = 16
The analysis of interest-related cash flows and tax rates from 2015 to 2019 reveals a period of increasing net interest expenditures coupled with a general decline in the effective tax burden. While cash payments for interest followed a growth trajectory for the majority of the period, capitalized interest exhibited significant volatility, suggesting fluctuating levels of capital investment.
- Effective Income Tax Rate (EITR) Trends
- The effective income tax rate demonstrated a general downward trajectory over the five-year period. Starting at 29.20% in 2015, the rate fluctuated slightly before experiencing a substantial decrease between 2017 and 2018, dropping from 28.90% to 20.60%. The rate remained relatively stable thereafter, closing at 20.20% in 2019.
- Net Cash Interest Payments
- Cash payments for interest, net of tax, showed a consistent upward trend from 2015 through 2018. Outflows increased from US$ 195 million in 2015 to a peak of US$ 369 million in 2018, representing a significant growth in the cost of servicing debt on a net basis. A moderate reversal occurred in 2019, with payments decreasing to US$ 340 million.
- Net Capitalized Interest
- Interest capitalization patterns were non-linear. A contraction is observed from 2015 to 2017, where values fell from US$ 75 million to US$ 11 million. After remaining low in 2018 at US$ 13 million, there was a sharp increase in 2019 to US$ 61 million. This volatility typically indicates varying scales of construction or asset development projects during these periods.
- Correlation Between Tax Rates and Interest Outflows
- The decline in the EITR since 2017 coincides with the peak in net cash interest payments. Because interest is reported net of tax, the reduction in the tax rate implies that the tax shield provided by interest expenses became less potent in reducing the overall tax burden, potentially contributing to the higher net cash outflows observed in 2018 and 2019 compared to the 2015-2016 period.
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Enterprise Value to FCFF Ratio, Current
Phillips 66, current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 51,629) |
| Free cash flow to the firm (FCFF) | 1,336) |
| Valuation Ratio | |
| EV/FCFF | 38.63 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Chevron Corp. | 28.21 |
| ConocoPhillips | 24.04 |
| Exxon Mobil Corp. | 31.08 |
Based on: 10-K (reporting date: 2019-12-31).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
Phillips 66, historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 51,629) | 54,931) | 55,363) | 49,493) | 48,895) | |
| Free cash flow to the firm (FCFF)2 | 1,336) | 5,317) | 2,126) | 413) | 219) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 38.63 | 10.33 | 26.04 | 119.84 | 223.52 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Chevron Corp. | — | — | — | — | — | |
| ConocoPhillips | — | — | — | — | — | |
| Exxon Mobil Corp. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).
3 2019 Calculation
EV/FCFF = EV ÷ FCFF
= 51,629 ÷ 1,336 = 38.63
4 Click competitor name to see calculations.
The financial performance between 2015 and 2019 demonstrates a period of significant volatility in cash flow generation relative to the total enterprise valuation. While the enterprise value remained relatively stable, fluctuating within a range of approximately 48.9 billion to 55.4 billion US dollars, the free cash flow to the firm exhibited extreme variances, which fundamentally drove the movement of the EV/FCFF ratio.
- Enterprise Value Trends
- The enterprise value showed a moderate upward trajectory from 2015 to 2017, peaking at 55,363 million US dollars before experiencing a gradual decline to 51,629 million US dollars by the end of 2019. This indicates a period of relative stability in the market valuation of the entity's operations and debt.
- Free Cash Flow to the Firm Dynamics
- A stark increase in FCFF is observed from 2015 through 2018, ascending from 219 million US dollars to a peak of 5,317 million US dollars. This rapid expansion in cash generation suggests a period of heightened operational efficiency or a reduction in capital expenditures. However, a sharp contraction occurred in 2019, with FCFF falling to 1,336 million US dollars.
- EV/FCFF Ratio Analysis
- The EV/FCFF ratio underwent a dramatic compression from 223.52 in 2015 to a low of 10.33 in 2018. This downward trend reflects the substantial growth in cash flow occurring against a backdrop of a stable enterprise value, effectively lowering the valuation multiple. The subsequent increase to 38.63 in 2019 is directly attributable to the significant decrease in FCFF, which expanded the multiple despite a lower overall enterprise value.
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